Let's talk about self storage.

Hello all. I received a call from our County Appraisal office asking for information about our facility followed up by an email. The appraiser's response in email was this...

"I essentially am looking for a breakdown of the size, number and rent of your various units, as well as occupancy and whether they are climate controlled.  You will also see a section for expenses. Any of this information is very helpful in accurately appraising your property. But if you don't have all the information requested, just please list what you do have."

His response to my question on how we are valued. 

"Facilities like yours are valued on the "income approach". It is based on market rent and market expenses…and market cap rate. Most of that is done by analyzing these surveys and market analysis on cap rates. So we ask all of these type of businesses to supply as much information as possible so that we can make accurate decisions."

For your owners, is this common (appraisal office calling to ask for all this information)? I have received advise of "just ignore the request" BUT we did just open in September 2022. We are at about 39% occupancy and need about 50-53% to break even. I am wondering if it would, in fact, be beneficial to provide this information, given we are still running in the negative (growing but not making money yet), in terms of valuing us for tax purposes.

Any advise on how much or not to share would be appreciated. Example...there is a place to list certain expenses. His list, with blank spaces to fill in, does NOT account for all expenses our business has so should I provide a separate, all-inclusive list to show true cost of operating expenses versus what we are making at this point in revenue?

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Ryan Stalling
Steel Roots Storage LLC
Waxahachie TX
(972) 921-7309
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Ryan,

Trash it. I can see how you think since you're at 39% occupancy (BTW the assessment date is January 1^st of each year) would help you, but it won't. They will just place a value on your property based on their comparable properties.

When you do get your Value Notice, probably in May, protest the value, unless you feel the value is reasonable or lower than you believe it should be. If so, do nothing and consider yourself lucky. If you do file a protest, the Central Appraisal District (CAD) will contact you wanting to schedule an informal meeting with an appraiser. I wouldn't bother with that, just go to the Appraisal Review Board (ARB). Because if you do go to an informal meeting, you won't get what you want and they will tell you, "I can't lower it to what you want, but the ARB can." Which is true.

You mentioned the list does not account for all expenses, this will be important at the ARB hearing. There will be 2 discrepancies between you and the CAD:

Expenses. The CAD will want to exclude certain expenses that you will want to include.

Capitalization Rate. The CAD will want to use a lower Cape Rate than you think is appropriate.

They will use their market data and certain industry appraisal manuals to support their conclusions. Simply keep telling the ARB that you're presenting actual data and explain why an investor would consider all the expenses and Cape Rate you're claiming in valuating your facility.

Remember this formula:

     Income    

Rate x Value

This is a 3-way formula, but since value is your goal, Income divided by Rate equals value.

If you feel uncomfortable going to the ARB, you can always hire a Property Tax Consultant based on contingency. You shouldn't have to agree to more than 33% contingency.

There's probably information on the TSSA site that explains this more thoroughly.

I hope I'm stating the obvious, just wanted to cover everything.

Paul

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Paul Lash
Sandy Beach Boat *RV* Self Storage
Azle TX
(817) 889-6762
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Hi All
I would agree with Paul to an extent. You should not give too much information however my experience was a little different. The appraisal district called me and told me that they were using Austin metrics to valuate my facility that is rural. At the time I was not fully occupied and I was forced to prove my point with reports from my software. They did back down After that experience I did hire a property tax consultant and pay 25% of the savings. This has proven to not only help my stress level but be very advantageous in fighting the values.

Hope this helps!

Jeanne Dube
Solid Ground Storage
505 W US HWY 290
Elgin, Tx 78621

Ryan, welcome to Ellis County.  The CAD here is more than aggressive...they are oppressive.  Any information you share will be used against you and the rest of us in the industry.   Fight the valuation annually to keep it as low as you can.  The income approach is one path to valuation and there are others.  Ellis County makes up significant values and then makes you defend it by sharing proprietary information to reduce the values.  I'm not a fan of Ellis County and just know that rates will increase all the time to keep up with the taxes.  Its a great market and your facility will do good but the taxes will be a constant thorn.  Sorry...John McAfee

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John McAfee
The Storage Place - DFW, Frisco
Frisco TX
(214) 923-0070
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Original Message:
Sent: 01-07-2023 09:37 AM
From: Jeanne Dube
Subject: COUNTY APPRAISER CALLED ASKING QUESTIONS - What do other owners share (or not share)?

Hi All
I would agree with Paul to an extent. You should not give too much information however my experience was a little different. The appraisal district called me and told me that they were using Austin metrics to valuate my facility that is rural. At the time I was not fully occupied and I was forced to prove my point with reports from my software. They did back down After that experience I did hire a property tax consultant and pay 25% of the savings. This has proven to not only help my stress level but be very advantageous in fighting the values.

Hope this helps!

Jeanne Dube
Solid Ground Storage
505 W US HWY 290
Elgin, Tx 78621

Original Message:
Sent: 1/8/2023 12:08:00 PM
From: John McAfee
Subject: RE: COUNTY APPRAISER CALLED ASKING QUESTIONS - What do other owners share (or not share)?

Ryan, welcome to Ellis County.  The CAD here is more than aggressive...they are oppressive.  Any information you share will be used against you and the rest of us in the industry.   Fight the valuation annually to keep it as low as you can.  The income approach is one path to valuation and there are others.  Ellis County makes up significant values and then makes you defend it by sharing proprietary information to reduce the values.  I'm not a fan of Ellis County and just know that rates will increase all the time to keep up with the taxes.  Its a great market and your facility will do good but the taxes will be a constant thorn.  Sorry...John McAfee

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John McAfee
The Storage Place - DFW, Frisco
Frisco TX
(214) 923-0070
------------------------------

I am a property tax consultant and litigator. I have almost always advised clients to decline to share this information with the appraisal district. They will also reach out after sales and ask how much you paid. Keep in mind, Texas is a nondisclosure state. Definitely protest every year. That way you can see what the assessed value is, compare it to other facilities, then determine what you should and should not share with the district or with your property tax professional. 

Greg Hart

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Greg Hart
Hart Legal Group
Austin TX
(512) 296-1991
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I am a storage owner and the appraisal district is using our web site to get our rates and a good idea of our number and size units. They are using a income formula that does not consider your actual income or expenses. They also claim it is mandated by the state to use the income approach when appraising storage properties.  My argument is that when you use the income valuation, your are including the intangible value of the business, which is not taxable in Texas. Such things like customer list, future income stream, software, business reputation, etc. I agree the income flow does come into play in a sale but some of that sales price is  the intangible value. Example: take two completely exact storage facilities, same age, location, type construction, located side by side.  Absolutely no difference at all. However one is completely vacant and one is 90% leased. Which one will sell for more. Of course the leased one. The difference is the intangible value. This needs to be challenged in court.

Fred Winkler

254-433-1886

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Fred Winkler
Main Street Storage
Eastland TX
(254) 631-7762
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Original Message:
Sent: 01-08-2023 06:05 PM
From: Greg Hart
Subject: COUNTY APPRAISER CALLED ASKING QUESTIONS - What do other owners share (or not share)?

I am a property tax consultant and litigator. I have almost always advised clients to decline to share this information with the appraisal district. They will also reach out after sales and ask how much you paid. Keep in mind, Texas is a nondisclosure state. Definitely protest every year. That way you can see what the assessed value is, compare it to other facilities, then determine what you should and should not share with the district or with your property tax professional. 

Greg Hart

------------------------------
Greg Hart
Hart Legal Group
Austin TX
(512) 296-1991
------------------------------

Original Message:
Sent: 6/26/2023 4:36:00 PM
From: Fred Winkler
Subject: RE: COUNTY APPRAISER CALLED ASKING QUESTIONS - What do other owners share (or not share)?

I am a storage owner and the appraisal district is using our web site to get our rates and a good idea of our number and size units. They are using a income formula that does not consider your actual income or expenses. They also claim it is mandated by the state to use the income approach when appraising storage properties.  My argument is that when you use the income valuation, your are including the intangible value of the business, which is not taxable in Texas. Such things like customer list, future income stream, software, business reputation, etc. I agree the income flow does come into play in a sale but some of that sales price is  the intangible value. Example: take two completely exact storage facilities, same age, location, type construction, located side by side.  Absolutely no difference at all. However one is completely vacant and one is 90% leased. Which one will sell for more. Of course the leased one. The difference is the intangible value. This needs to be challenged in court.

Fred Winkler

254-433-1886

------------------------------
Fred Winkler
Main Street Storage
Eastland TX
(254) 631-7762
------------------------------

I am in a small county just like yours. 2 thoughts come to mind. In my case I built and opened 6.5 yrs ago (OPENED in Jan). My first proposed tax bill was based on the sq footage and because I had just opened I was empty - so I asked for and got the income method. Dropped my rate by 2/3. They value or reassess here about every 3 yrs. This time the valuation tripled. I called to talk with them and it was cheaper by the sq ft than the income method. They switched it to the sq footage method. It's still high, very in fact.
I am also a realtor here in this 20,000 population COUNTY. So I personally know the appraiser. Try talking to them about going standard sq ft. Hopefully they will work with you. BUT, making the appraiser mad in a small county is rarely a good idea. Make them real mad and you will be on the "HIT" list forever.
The appeal boards in small counties are the small group of "Good ole Boys" who have not read the tax laws. Sad but true.








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Original Message:
Sent: 6/26/2023 4:36:00 PM
From: Fred Winkler
Subject: RE: COUNTY APPRAISER CALLED ASKING QUESTIONS - What do other owners share (or not share)?

I am a storage owner and the appraisal district is using our web site to get our rates and a good idea of our number and size units. They are using a income formula that does not consider your actual income or expenses. They also claim it is mandated by the state to use the income approach when appraising storage properties.  My argument is that when you use the income valuation, your are including the intangible value of the business, which is not taxable in Texas. Such things like customer list, future income stream, software, business reputation, etc. I agree the income flow does come into play in a sale but some of that sales price is  the intangible value. Example: take two completely exact storage facilities, same age, location, type construction, located side by side.  Absolutely no difference at all. However one is completely vacant and one is 90% leased. Which one will sell for more. Of course the leased one. The difference is the intangible value. This needs to be challenged in court.

Fred Winkler

254-433-1886

------------------------------
Fred Winkler
Main Street Storage
Eastland TX
(254) 631-7762
------------------------------